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Momentum Cycles and Limits to Arbitrage Evidence from Victorian England and Post-Depression US Stock Markets

Author

Listed:
  • Benjamin Chabot
  • Eric Ghysels
  • Ravi Jagannathan

Abstract

We evaluate the importance of "Limits to Arbitrage" to explain profitability of momentum strategies. Specifically, when the availability of arbitrage capital is in short supply, momentum cycles last longer, and breaks in momentum cycles are shorter. We demonstrate the robustness of our findings with a unique database of stock returns from1866-1907 London and the CRSP database. Momentum cycle durations are similar in both databases and all other momentum facts documented in the literature using the CRSP database hold for the Victorian period as well, except for the January reversal due to the absence of capital gains taxation.

Suggested Citation

  • Benjamin Chabot & Eric Ghysels & Ravi Jagannathan, 2009. "Momentum Cycles and Limits to Arbitrage Evidence from Victorian England and Post-Depression US Stock Markets," NBER Working Papers 15591, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:15591
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Menkhoff, Lukas & Sarno, Lucio & Schmeling, Maik & Schrimpf, Andreas, 2012. "Currency momentum strategies," Journal of Financial Economics, Elsevier, vol. 106(3), pages 660-684.
    2. Daniel, Kent & Moskowitz, Tobias J., 2016. "Momentum crashes," Journal of Financial Economics, Elsevier, vol. 122(2), pages 221-247.
    3. Chabot, Benjamin & Ghysels, Eric & Jagannathan, Ravi, 2014. "Momentum Trading, Return Chasing and Predictable Crashes," Working Paper Series WP-2014-27, Federal Reserve Bank of Chicago.
    4. William Goetzmann & Simon Huang, 2015. "Momentum in Imperial Russia," NBER Working Papers 21700, National Bureau of Economic Research, Inc.
    5. Kent Daniel & Tobias J. Moskowitz, 2014. "Momentum Crashes," NBER Working Papers 20439, National Bureau of Economic Research, Inc.
    6. Victoria Dobrynskaya, 2017. "Dynamic Momentum and Contrarian Trading," HSE Working papers WP BRP 61/FE/2017, National Research University Higher School of Economics.
    7. Kent Daniel & Ravi Jagannathan & Soohun Kim, 2012. "Tail Risk in Momentum Strategy Returns," NBER Working Papers 18169, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • G0 - Financial Economics - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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